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Disaster Insurance or a Disastrous Insurance – Natural Disaster Insurance in France

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  • Mario Jametti
  • Thomas von Ungern-Sternberg

Abstract

We model natural disaster insurance in France. We explicitly take into account the main institutional features of the system, such as the uniform premium rate in both high and low risk regions and the existence of a state reinsurance company. Our model indicates that the institutional set-up is fundamentally flawed. We find that the market is likely to lead to “specialist” equilibria, where insurers specialize in serving either high or low risk regions. As a result the reinsurance company, which offers cover to all insurers at the same price, is likely to suffer from a portfolio with mainly “bad” risks. We show that increasing the premium rate customers have to pay, a policy undertaken by the French authorities, will not necessarily solve these problems and comes at a high cost to the final consumer (and taxpayer).

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2004/wp-cesifo-2004-10/cesifo1_wp1303.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1303.

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Date of creation: 2004
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Handle: RePEc:ces:ceswps:_1303

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Keywords: property insurance; reinsurance; risk selection;

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  1. Dwight M. Jaffee & Thomas Russell, 1996. "Catastrophe Insurance, Capital Markets and Uninsurable Risks," Center for Financial Institutions Working Papers 96-12, Wharton School Center for Financial Institutions, University of Pennsylvania.
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Cited by:
  1. Mario Jametti & Thomas von Ungern-Sternberg, 2006. "Risk Selection in Natural Disaster Insurance – the Case of France," CESifo Working Paper Series 1683, CESifo Group Munich.
  2. Mario Jametti & Thomas von Ungern-Sternberg, 2010. "Risk Selection in Natural-Disaster Insurance," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 166(2), pages 344-364, June.

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